Employer of Record in Lithuania

Hiring talent in Lithuania opens doors to a skilled workforce and a dynamic European market. However, navigating the country's specific employment laws, social security contributions, and tax regulations can be complex for foreign companies. Establishing a local legal entity is one approach, but it often involves significant time and financial investment, especially when looking to hire in 2025.

For companies looking to engage employees in Lithuania, several avenues are available:

• Establish a local entity: This involves setting up a subsidiary or branch office, a process that requires legal registration, maintaining local accounts, and ensuring compliance with all Lithuanian corporate and employment laws.
• Engage an independent contractor: This offers flexibility but carries the risk of misclassification if the working relationship resembles employment, potentially leading to significant penalties under Lithuanian regulations.
• Utilize an Employer of Record (EOR) service: A global EOR like Rivermate provides a compliant and efficient way to hire employees in Lithuania without establishing your own legal entity.

How an EOR Works in Lithuania

An Employer of Record service simplifies international hiring by acting as the legal employer for your team members in Lithuania. While you retain full control over day-to-day management and responsibilities, the EOR handles all the formal employment obligations. Specifically in Lithuania, an EOR takes care of:

• Onboarding and employment contracts: Ensuring compliant, localized employment agreements in line with the Lithuanian Labor Code.
• Payroll processing and tax withholding: Managing local payroll, including income tax, social security contributions, and other statutory deductions.
• Benefits administration: Facilitating enrollment in local statutory benefits such as health insurance, pensions, and sick leave.
• Compliance with labor laws: Adhering to all aspects of the Lithuanian Labor Code, including working hours, leave policies, and termination requirements.
• HR administration: Handling various HR-related tasks, allowing your company to focus on strategic growth.

Benefits of Using an EOR in Lithuania

For businesses seeking to expand into Lithuania without the overhead of establishing a local entity, an EOR offers compelling advantages:

• Rapid market entry: Hire employees quickly, often within days, bypassing the lengthy process of entity setup.
• Reduced costs and administrative burden: Eliminate the need for local legal registration, compliance teams, and complex payroll systems.
• Guaranteed compliance: Mitigate risks associated with non-compliance by relying on the EOR's expertise in Lithuanian labor and tax laws.
• Flexibility: Scale your team up or down as business needs evolve without the complications of managing a local entity.
• Access to top talent: Recruit and hire the best candidates in Lithuania regardless of your company's physical presence.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Lithuania includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Lithuania.

Employers in Lithuania must contribute 1.87% of gross salaries to social security, covering pension, health, unemployment, plus 0.2% each to the Guarantee Fund and Labour Market Training Fund. They are also responsible for withholding a 20% personal income tax (PIT) from employees, with higher rates (32%) applying to income exceeding approximately €104,000 annually. Employees benefit from deductions such as the Non-Taxable Amount (NTA), which varies based on income, and additional allowances for parents, pension contributions, life insurance, and education expenses.

Tax compliance requires monthly reporting of withheld taxes and social contributions by the 15th of the following month, with annual summaries due early the next year. Penalties apply for late submissions. For foreign workers, residency status and double taxation treaties influence tax obligations, and foreign companies with a permanent establishment are liable for Lithuanian corporate taxes. Professional advice is recommended to navigate these regulations effectively.

Lithuania's salary landscape is evolving with a steady increase in wages driven by economic growth, demand for skilled workers, inflation, and EU integration. The average annual salaries vary by industry and role, with IT professionals earning between €35,000 and €70,000, healthcare workers from €24,000 to €75,000, and finance roles around €25,000 to €55,000. Employers should align compensation packages with industry standards and regional cost of living, especially in Vilnius and Kaunas.

The statutory minimum wage in 2025 is €924 monthly (€5.66 hourly). Compensation often includes bonuses such as annual, performance, holiday, and allowances for transportation, meals, or relocation. The typical payroll cycle is monthly, with salaries paid via bank transfer, and payslips detailing gross pay, deductions, and net salary are mandatory. Salary growth forecasts project a 5-8% rise in 2025, emphasizing the importance for companies to adapt their compensation strategies to remain competitive.

Lithuania's labor law mandates minimum leave entitlements to promote employee well-being. Employees are entitled to at least 20 working days of annual vacation, which increases to 24 days for six-day workweeks and can extend up to 35 calendar days for specific groups such as minors and persons with disabilities. Vacation scheduling requires at least two weeks' notice, and leave can be split, with one part lasting no less than 10 working days.

Employees also benefit from public holidays, with key dates including New Year, Independence Day, Easter, Labour Day, and Christmas, generally resulting in days off or compensatory rest if falling on weekends. Sick leave is paid initially by employers for the first two days (at 62.06%), then by the Social Insurance Fund (at 80%) from the third day onward, contingent on medical certification. Parental leave provisions include 126 days of maternity leave (extended to 140 days in certain cases), 30 days of paternity leave, and childcare leave until the child turns three, with benefits ranging from 77.54% to 38.78% of average earnings depending on the leave type and duration.

Lithuania mandates several employee benefits, including social security contributions, paid annual leave (minimum 20 days), paid sick leave, maternity/paternity leave, public holidays, and termination-related protections. Employers contribute to the State Social Insurance Fund (SoDra), covering pensions, health, and unemployment benefits. Mandatory benefits form the baseline, with compliance governed by the Labor Code and social security laws.

In addition to legal requirements, many employers enhance packages with optional benefits such as supplementary private health insurance, life insurance, pension contributions, training, wellness programs, flexible work arrangements, company cars, and meal vouchers. The state provides universal health coverage, but private insurance offers faster access and broader services, with costs varying based on coverage levels.

Retirement benefits include a mandatory state pension and voluntary supplementary schemes, often supported by employer contributions and tax incentives. Larger firms tend to offer comprehensive packages, while SMEs focus on core mandatory benefits. Employers should budget for social security and optional benefits, ensuring compliance with relevant laws and maintaining accurate records.

Lithuanian employment agreements, governed by the Labour Code, must be in writing and include key clauses such as parties' names, job description, work location, start date, salary, working hours, leave entitlements, termination conditions, and applicable collective agreements. The law recognizes various contract types: fixed-term, indefinite, concurrent, seasonal, and project-based, with fixed-term contracts permissible under specific conditions to prevent rights circumvention.

Probation periods are limited to three months, during which either party can terminate with three days' notice. Confidentiality and non-compete clauses are enforceable if reasonable; non-compete clauses require compensation post-termination. Contract modifications need mutual written consent, and termination can occur via mutual agreement, resignation (notice typically 14 days), employer-initiated reasons, contract expiration, or other legal grounds, with strict procedural compliance required.

Lithuania has experienced a notable rise in remote work, driven by technological advancements and evolving employee expectations. The legal framework, primarily governed by the Lithuanian Labor Code, supports various flexible arrangements such as full-time remote, hybrid, flextime, compressed workweek, and job sharing. Employers are responsible for ensuring a safe remote environment, providing necessary equipment, protecting data privacy, and maintaining clear communication. It is recommended to formalize remote work terms through written agreements covering work hours, performance, and protocols.

Data protection is a priority, requiring compliance with GDPR through policies on data security, secure communication channels, and regular training. Employers should also establish transparent equipment and expense reimbursement policies, covering items like laptops, internet, office supplies, and home office setup. A reliable technological infrastructure is essential, including VPN access, cloud collaboration tools, cybersecurity measures, and IT support to ensure effective remote operations.

In Lithuania, employment termination is regulated by the Labour Code, requiring compliance with notice periods, severance pay, and procedural steps. Notice periods vary based on contract type and employee tenure, with indefinite contracts requiring up to 3 months' notice for over 10 years of service, while fixed-term contracts generally mandate a 1-month notice. During probation, notice is typically 3 working days. Severance pay is mandatory for dismissals not related to employee misconduct, calculated as 1 to 4 months' average salary depending on service length.

Key data points:

Employers must follow proper procedures, including issuing written notices, stating reasons, consulting employee representatives, maintaining documentation, and settling dues. Terminations with cause require valid grounds such as misconduct, while redundancies necessitate notice and severance. Lithuanian law also offers protections against unfair dismissal, allowing employees to seek reinstatement or compensation, especially for vulnerable groups like pregnant women. Employers bear the burden of proving lawful termination to avoid disputes.

Lithuania's labor market is increasingly adopting flexible work arrangements, with independent contracting and freelancing becoming vital. This trend offers businesses access to specialized skills and flexibility, while individuals gain autonomy and diverse opportunities. For employers, understanding Lithuania's legal, contractual, and tax frameworks is crucial to ensure compliance and effective collaboration. Misclassification of workers can result in significant penalties, making it essential to distinguish between employees and independent contractors based on factors like subordination, integration, exclusivity, financial risk, nature of work, and payment methods.

Independent contractors in Lithuania often operate under business certificates or as sole proprietors. Contracts should clearly define the scope of work, payment terms, termination clauses, confidentiality, intellectual property rights, and governing law. Intellectual property created by contractors typically belongs to them unless otherwise specified in the contract, necessitating clear IP clauses. Contractors are responsible for their tax obligations, including personal income tax, mandatory health insurance, and state social insurance. Key industries employing freelancers include IT, creative services, consulting, education, healthcare, and construction.

In Lithuania, work permit requirements vary based on nationality and employment duration. EU/EEA citizens can work without a visa, while non-EU/EEA nationals generally need a visa and work permit. The main visa types include the National Visa (D Visa) for stays over 90 days, suitable for employment, and the Schengen Visa (C Visa) for short-term stays up to 90 days, which typically does not permit employment. The EU Blue Card is available for highly qualified professionals with a higher education degree and a salary above a set threshold.

Employers should ensure compliance with visa regulations, especially for non-EU/EEA workers, and be aware of pathways to permanent residency and options for dependents. Navigating the system can be complex, but understanding these key categories and requirements is essential for legal employment in Lithuania.